1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
-------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file numbers 1-12080 and 0-28226
------------------------
POST PROPERTIES, INC.
POST APARTMENT HOMES, L.P.
(Exact name of registrant as specified in its charter)
GEORGIA 58-1550675
GEORGIA 58-2053632
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
4401 NORTHSIDE PARKWAY, SUITE 800, ATLANTA, GEORGIA 30327
(Address of principal executive offices -- zip code)
(404) 846-5000
(Registrant's telephone number, including area code)
3350 CUMBERLAND CIRCLE, SUITE 2200, ATLANTA, GEORGIA 30339
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrants (1) have filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) have been subject to such
filing requirements for the past 90 days.
Post Properties, Inc. Yes [X] No [ ]
Post Apartment Homes, L.P. Yes [X] No [ ]
------------------------
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date.
39,560,156 shares of common stock outstanding as of August 10, 2000
(excluding treasury stock).
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2
POST PROPERTIES, INC.
POST APARTMENT HOMES, L.P.
INDEX
PAGE
----
PART I FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
POST PROPERTIES, INC.
Consolidated Balance Sheets as of June 30, 2000 and December 31, 1999 ............ 1
Consolidated Statements of Operations for the three and six months ended
June 30, 2000 and 1999 ........................................................ 2
Consolidated Statement of Shareholders' Equity and Accumulated Earnings for the
six months ended June 30, 2000 ................................................ 3
Consolidated Statements of Cash Flows for the six months ended
June 30, 2000 and 1999 ........................................................ 4
Notes to Consolidated Financial Statements ....................................... 5
POST APARTMENT HOMES, L.P.
Consolidated Balance Sheets as of June 30, 2000 and December 31, 1999 ............ 10
Consolidated Statements of Operations for the three and six months ended
June 30, 2000 and 1999 ........................................................ 11
Consolidated Statement of Partners' Equity for the six months ended
June 30, 2000 ................................................................. 12
Consolidated Statements of Cash Flows for the six months ended
June 30, 2000 and 1999 ........................................................ 13
Notes to Consolidated Financial Statements ....................................... 14
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS ................................................................... 18
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ................... 29
PART II OTHER INFORMATION .................................................................... 30
ITEM 1 LEGAL PROCEEDINGS
ITEM 2 CHANGES IN SECURITIES AND USE OF PROCEEDS
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDER
ITEM 5 OTHER INFORMATION
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES ........................................................................... 31
3
POST PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
JUNE 30, DECEMBER 31,
2000 1999
----------- ------------
(UNAUDITED)
ASSETS
Real estate:
Land .................................................................. $ 294,448 $ 277,784
Building and improvements ............................................. 1,681,015 1,574,158
Furniture, fixtures and equipment ..................................... 165,561 137,602
Construction in progress .............................................. 531,250 576,361
Land held for future development ...................................... 21,181 16,880
----------- -----------
2,693,455 2,582,785
Less: accumulated depreciation .......................................... (327,195) (303,016)
Assets held for sale .................................................. 50,579 --
----------- -----------
Real estate assets ...................................................... 2,416,839 2,279,769
Cash and cash equivalents ............................................... 15,214 5,870
Restricted cash ......................................................... 1,502 1,380
Deferred charges, net ................................................... 21,103 20,820
Other assets ............................................................ 59,010 42,334
----------- -----------
Total assets .......................................................... $ 2,513,668 $ 2,350,173
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes payable ........................................................... $ 1,125,028 $ 989,583
Accrued interest payable ................................................ 9,054 9,160
Dividends and distributions payable ..................................... 37,367 31,285
Accounts payable and accrued expenses ................................... 71,848 59,780
Security deposits and prepaid rents ..................................... 10,066 9,023
----------- -----------
Total liabilities ..................................................... 1,253,363 1,098,831
----------- -----------
Minority interest of preferred unitholders in Operating Partnership ..... 70,000 70,000
Minority interest of common unitholders in Operating Partnership ........ 121,653 122,480
Shareholders' equity
Preferred stock, $.01 par value, 20,000,000 authorized:
8 1/2% Series A Cumulative Redeemable Shares, liquidation
preference $50 per share, 1,000,000 shares issued and outstanding ... 10 10
7 5/8% Series B Cumulative Redeemable Shares, liquidation
preference $25 per share, 2,000,000 shares issued and outstanding ... 20 20
7 5/8% Series C Cumulative Redeemable Shares, liquidation
preference $25 per share, 2,000,000 shares issued and outstanding ... 20 20
Common stock, $.01 par value, 100,000,000 authorized,
39,411,256 and 38,834,323 shares issued and outstanding at
June 30, 2000 and December 31, 1999, respectively ................... 394 388
Additional paid-in capital ............................................ 1,070,644 1,058,424
Accumulated earnings .................................................. -- --
----------- -----------
1,071,088 1,058,862
Less common stock in treasury at cost, 54,497 shares .................. (2,436) --
----------- -----------
Total shareholders' equity ............................................ 1,068,652 1,058,862
----------- -----------
Total liabilities and shareholders' equity ............................ $ 2,513,668 $ 2,350,173
=========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
- 1 -
4
POST PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------- ----------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
REVENUE:
Rental .................................................... $ 90,243 $ 78,098 $ 178,067 $ 153,683
Property management - third-party ......................... 933 768 1,841 1,639
Landscape services - third-party .......................... 2,999 2,508 5,101 4,238
Interest .................................................. 448 305 987 370
Other ..................................................... 4,859 3,825 8,929 6,465
----------- ----------- ----------- -----------
Total revenue ......................................... 99,482 85,504 194,925 166,395
----------- ----------- ----------- -----------
EXPENSES:
Property operating and maintenance expense
(exclusive of items shown separately below) ............. 32,238 28,305 62,890 54,674
Depreciation expense ...................................... 16,430 14,285 33,436 26,995
Property management - third-party ......................... 730 706 1,518 1,425
Landscape services - third-party .......................... 2,479 2,114 4,484 3,774
Interest .................................................. 12,062 8,150 22,763 15,368
Amortization of deferred loan costs ....................... 400 370 784 706
General and administrative ................................ 1,669 1,765 4,166 4,148
Minority interest in consolidated property partnerships ... (260) 185 (815) 276
----------- ----------- ----------- -----------
Total expense ......................................... 65,748 55,880 129,226 107,366
----------- ----------- ----------- -----------
Income before net gain (loss) on sale of assets,
minority interest of unitholders in Operating
Partnership and extraordinary item ........................ 33,734 29,624 65,699 59,029
Net gain (loss) on sale of assets ........................... (18) 476 669 (1,091)
Minority interest of preferred unitholders in
Operating Partnership ..................................... (1,400) -- (2,800) --
Minority interest of common unitholders in
Operating Partnership .................................... (3,423) (3,237) (6,743) (6,229)
----------- ----------- ----------- -----------
Income before extraordinary item ............................ 28,893 26,863 56,825 51,709
Extraordinary item, net of minority interest of
unitholders in Operating Partnership ...................... -- -- -- (458)
----------- ----------- ----------- -----------
Net income .................................................. 28,893 26,863 56,825 51,251
Dividends to preferred shareholders ......................... (2,969) (2,969) (5,938) (5,938)
----------- ----------- ----------- -----------
Net income available to common shareholders ................. $ 25,924 $ 23,894 $ 50,887 $ 45,313
=========== =========== =========== ===========
EARNINGS PER COMMON SHARE - BASIC
Income before extraordinary item (net of preferred
dividend) ............................................... $ 0.66 $ 0.62 $ 1.30 $ 1.19
Extraordinary item ........................................ -- -- -- (0.01)
----------- ----------- ----------- -----------
Net income available to common shareholders ............... $ 0.66 $ 0.62 $ 1.30 $ 1.18
=========== =========== =========== ===========
Weighted average common shares outstanding .................. 39,294,234 38,357,308 39,160,002 38,253,833
=========== =========== =========== ===========
EARNINGS PER COMMON SHARE - DILUTED
Income before extraordinary item (net of preferred
dividend) ............................................... $ 0.65 $ 0.61 $ 1.28 $ 1.18
Extraordinary item ........................................ -- -- -- (0.01)
----------- ----------- ----------- -----------
Net income available to common shareholders ............... $ 0.65 $ 0.61 $ 1.28 $ 1.17
=========== =========== =========== ===========
Weighted average common shares outstanding ................ 40,130,580 38,940,186 39,753,796 38,685,353
=========== =========== =========== ===========
Dividends declared ........................................ $ 0.76 $ 0.70 $ 1.52 $ 1.40
=========== =========== =========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
- 2 -
5
POST PROPERTIES, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY AND
ACCUMULATED EARNINGS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
PREFERRED COMMON PAID-IN ACCUMULATED TREASURY
SHARES SHARES CAPITAL EARNINGS STOCK TOTAL
--------- ------ ---------- ----------- -------- -----------
SHAREHOLDERS' EQUITY AND
ACCUMULATED EARNINGS,
DECEMBER 31, 1999 ....................................... $ 50 $388 $1,058,424 $ -- $ -- $1,058,862
Proceeds from Dividend Reinvestment, Employee
Stock Plan and Employee Stock Purchase Plans ........... -- 6 21,369 -- -- 21,375
Adjustment for minority interest of common unitholders
in Operating Partnership at dates of capital
transactions ........................................... -- -- (315) -- -- (315)
Net income .............................................. -- -- -- 56,825 -- 56,825
Treasury stock acquisitions ............................. -- -- -- -- (2,436) (2,436)
Dividends to preferred shareholders ..................... -- -- -- (5,938) -- (5,938)
Dividends to common shareholders ........................ -- -- (8,834) (50,887) -- (59,721)
---- ---- ---------- -------- ------- ----------
SHAREHOLDERS' EQUITY AND
ACCUMULATED EARNINGS,
JUNE 30, 2000 ........................................... $ 50 $394 $1,070,644 $ -- $(2,436) $1,068,652
==== ==== ========== ======== ======= ==========
The accompanying notes are an integral part of these
consolidated financial statements.
- 3 -
6
POST PROPERTIES, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
-------------------------------
2000 1999
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ................................................................. $ 56,825 $ 51,251
Adjustments to reconcile net income to net cash provided by operating
activities:
Net (gain) loss on sale of assets ........................................ (669) 1,091
Minority interest of preferred unitholders in Operating Partnership ...... 2,800 --
Minority interest of common unitholders in Operating Partnership ......... 6,743 6,229
Extraordinary item, net of minority interest of unitholders
in Operating Partnership ............................................... -- 458
Depreciation ............................................................. 33,436 26,995
Amortization of deferred loan costs ...................................... 784 706
Changes in assets, (increase) decrease in:
Restricted cash .......................................................... (122) (168)
Other assets ............................................................. (16,676) (10,070)
Deferred charges ......................................................... (2,039) (1,051)
Changes in liabilities, increase (decrease) in:
Accrued interest payable ................................................. (106) (143)
Accounts payable and accrued expenses .................................... 7,005 3,203
Security deposits and prepaid rents ...................................... 1,043 213
---------- ----------
Net cash provided by operating activities .................................. 89,024 78,714
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Construction and acquisition of real estate assets, net of payables ........ (174,263) (134,855)
Net proceeds from sale of assets ........................................... 31,415 10,007
Capitalized interest ....................................................... (11,867) (9,568)
Recurring capital expenditures ............................................. (4,462) (4,679)
Corporate additions and improvements ....................................... (1,326) (2,360)
Non-recurring capital expenditures ......................................... (1,438) (1,013)
Revenue generating capital expenditures .................................... (2,189) (2,114)
---------- ----------
Net cash used in investing activities ...................................... (164,130) (144,582)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Payment of financing costs ................................................. -- (1,495)
Debt proceeds .............................................................. 200,000 155,000
Debt payments .............................................................. (64,555) (53,491)
Distributions to preferred unitholders ..................................... (2,800) --
Distributions to common unitholders ........................................ (7,582) (7,041)
Proceeds from Dividend Reinvestment and
Employee Stock Purchase Plans ............................................ 19,268 9,051
Dividends paid to preferred shareholders ................................... (2,969) (5,938)
Dividends paid to common shareholders ...................................... (56,912) (48,447)
---------- ----------
Net cash provided by financing activities .................................. 84,450 47,639
---------- ----------
Net increase (decrease) in cash and cash equivalents ....................... 9,344 (18,229)
Cash and cash equivalents, beginning of period ............................. 5,870 21,154
---------- ----------
Cash and cash equivalents, end of period ................................... $ 15,214 $ 2,925
========== ==========
The accompanying notes are an integral part of these
consolidated financial statements.
- 4 -
7
POST PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
1. ORGANIZATION AND FORMATION OF THE COMPANY
ORGANIZATION AND FORMATION OF THE COMPANY
Post Properties, Inc. (the "Company"), which was incorporated on January 25,
1984, is the successor by merger to the original Post Properties, Inc., a
Georgia corporation which was formed in 1971. The Company was formed to
develop, lease and manage upscale multi-family apartment communities.
The Company elected to be taxed as a real estate investment trust ("REIT")
for Federal income tax purposes beginning with the taxable year ended
December 31, 1993. A REIT is a legal entity which holds real estate
interests and, through payments of dividends to shareholders, in practical
effect is not subject to Federal income taxes at the corporate level.
BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared by the
Company's management in accordance with generally accepted accounting
principles for interim financial information and applicable rules and
regulations of the Securities and Exchange Commission. Accordingly, they do
not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting only of normally
recurring adjustments) considered necessary for a fair presentation have
been included. The results of operations for the six month period ended June
30, 2000 are not necessarily indicative of the results that may be expected
for the full year. These financial statements should be read in conjunction
with the Company's audited financial statements and notes thereto included
in the Post Properties, Inc. Annual Report on Form 10-K for the year ended
December 31, 1999. Certain 1999 amounts have been reclassified to conform to
the current year's financial statement presentation.
2. NOTES PAYABLE
Post Apartment Homes, L.P. (the "Operating Partnership") has established a
program for the sale of Medium-Term Notes due three months or more from date
of issue (the "MTN Program"). A $30,000 Medium Term Note was repaid on March
3, 2000.
On May 9, 2000, the Operating Partnership sold $25,000 aggregate principal
amount of notes under the MTN Program. These notes bear interest at the
London Interbank Offer Rate ("LIBOR") plus .75% and mature on February 1,
2005. Net proceeds of $24,875 were used to repay outstanding indebtedness.
On June 16, 2000, the Operating Partnership sold $150,000 aggregate
principal amount of notes under the MTN Program. These notes bear interest
at 8.12% and mature on June 15, 2005. Net proceeds of $148,865 were used to
repay outstanding indebtedness.
As of June 30, 2000, the Operating Partnership had $360,000 aggregate
principal amount of notes outstanding under the MTN Program.
3. SALE OF ASSETS AND ASSETS HELD FOR SALE
During the first quarter of 2000, the Company authorized the sale of five
communities, one community in Atlanta, Georgia, three communities in
Jackson, Mississippi and one commercial property in Dallas, Texas. In
February 2000, the Company sold the 213 unit community in Atlanta, Georgia
for $32,350. Net proceeds of approximately $31,400 were used to pay down
outstanding indebtedness. At June 30, 2000, the remaining four properties
consisting of land, building and improvements and furniture, fixtures and
equipment were recorded at $50,579, which represented the lower of cost or
fair value less costs to sell. The Company has recorded a gain on the sale
of the Atlanta community, reduced by its best estimate of the effect of
anticipated sales of the remaining properties in the statement of
- 5 -
8
POST PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
operations as net gain on the sale of assets of $669. The Company expects
the sale of the remaining four properties to occur during the current fiscal
year.
For the three months ended June 30, 2000 and 1999, the consolidated
statement of operations includes net income of $1,428 and $1,434,
respectively, from communities held for sale at June 30, 2000. For the six
months ended June 30, 2000 and 1999, the consolidated statement of
operations includes net income of $2,730 and $2,789, respectively, from
communities held for sale at June 30, 2000. Depreciation expense totaling
$477 was recognized on these assets prior to the assets being classified as
held for sale. Depreciation expense has not been recognized subsequent to
the date of held for sale classification.
4. EARNINGS PER SHARE
For the three and six months ended June 30, 2000 and 1999, a reconciliation
of the numerator and denominator used in the computation of basic and
diluted earnings per share is as follows:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------- ----------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
Basic and diluted income available to common
shareholders (numerator):
Income before extraordinary item .......................... $ 28,893 $ 26,863 $ 56,825 $ 51,709
Less: Preferred stock dividends ......................... (2,969) (2,969) (5,938) (5,938)
----------- ----------- ----------- -----------
Income available to common shareholders
before extraordinary item ............................... $ 25,924 $ 23,894 $ 50,887 $ 45,771
=========== =========== =========== ===========
Common shares (denominator):
Weighted average shares outstanding - basic ............... 39,294,234 38,357,308 39,160,002 38,253,833
Incremental shares from assumed conversion
of options .............................................. 836,346 582,878 593,794 431,520
----------- ----------- ----------- -----------
Weighted average shares outstanding - diluted ............. 40,130,580 38,940,186 39,753,796 38,685,353
=========== =========== =========== ===========
5. SUPPLEMENTAL CASH FLOW INFORMATION
Non-cash investing and financing activities for the six months ended June
30, 2000 and 1999 were as follows:
During the six months ended June 30, 2000 and 1999, holders of 12,014 and
17,299 units, respectively, in the Operating Partnership exercised their
option to convert their units to shares of Common Stock of the Company on a
one-for-one basis. These conversions and adjustments for the dilutive impact
of the Dividend Reinvestment and Employee Stock Purchase and Option Plans
and capital transactions result in adjustments to minority interest. The net
effect of the conversions and adjustments was a reclassification increasing
minority interest and decreasing shareholder's equity in the amount of $315
for the six months ended June 30, 2000 and decreasing minority interest and
increasing shareholder's equity in the amount of $1,288 for the six months
ended June 30, 1999.
6. NEW ACCOUNTING PRONOUNCEMENTS
On June 15, 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (FAS 133). FAS 133, as
amended by FAS 137, "Deferral of the Effective Date of FAS 133," is
effective for all fiscal quarters of all fiscal years beginning after June
15, 2000 (January 1, 2001 for the Company). FAS 133 requires that all
derivative instruments be recorded on the balance sheet at their fair value.
Changes in the fair value of derivatives are recorded each period in current
earnings or other comprehensive income, depending on whether a derivative is
designated as part of a hedge transaction and, if it is, the type of hedge
transaction. Management of the Company anticipates
- 6 -
9
POST PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
that, due to its limited use of derivative instruments, the adoption of FAS
133 will not have a significant effect on the Company's results of
operations or its financial position.
The Securities and Exchange Commission (SEC) issued Staff Accounting
Bulletin No. 101 (SAB 101), Revenue Recognition, which provides guidance on
the recognition, presentation, and disclosure of revenue in financial
statements. SAB 101 is required to be implemented in the fourth fiscal
quarter of 2000. Management of the Company anticipates that the adoption of
SAB 101 will not have a significant effect on the Company's results of
operations or its financial position.
7. SEGMENT INFORMATION
SEGMENT DESCRIPTION
The Company adopted SFAS No. 131, "Disclosure About the Segments of an
Enterprise and Related Information" in the fourth quarter of 1998. SFAS No.
131 requires companies to present segment information based on the way that
management organizes the segments within the enterprise for making operating
decisions and assessing performance. The segment information is prepared on
substantially the same basis as the internally reported information used by
the Company's chief operating decision makers to manage the business.
The Company's chief operating decision makers focus on the Company's primary
sources of income, which are property rental operations and third party
services. Property rental operations are broken down into five segments
based on the various stages in the property ownership lifecycle. Third party
services are designated as one segment. The Company's five segments are
further described as follows:
Property Rental Operations
- Fully stabilized communities - those communities which have been
stabilized (the point at which a property reaches 95% occupancy or one
year after completion of construction) for both the current and prior
year.
- Communities stabilized during 1999 - communities which reached
stabilized occupancy in the prior year.
- Development and lease up communities - those communities which are in
lease-up but were not stabilized by the beginning of the current year,
including communities which stabilized during the current year.
- Communities held for sale - those communities that are currently being
actively marketed for sale.
- Sold communities - communities which were sold in the current or prior
year.
Third Party Services - fee income and related expenses from the Company's
apartment community management, landscaping and corporate apartment rental
services.
SEGMENT PERFORMANCE MEASURE
Management uses contribution to funds from operations ("FFO") as the
performance measure for its segments. Effective January 1, 2000, FFO is
defined by the National Association of Real Estate Investment Trusts as net
income available to common shareholders determined in accordance with
generally accepted accounting principles ("GAAP"), excluding gains (or
losses) from debt restructuring and sales of property, plus depreciation of
real estate assets, and after adjustment for unconsolidated partnerships and
joint ventures. FFO should not be considered as an alternative to net income
(determined in accordance with GAAP) as an indicator of the Company's
financial performance or to cash flow from operating activities (determined
in accordance with GAAP) as a measure of the Company's liquidity, nor is it
necessarily indicative of sufficient cash flow to fund all of the Company's
needs.
- 7 -
10
POST PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
SEGMENT INFORMATION
The following table reflects each segment's contribution to FFO together
with a reconciliation of segment contribution to FFO, total FFO and income
before extraordinary item and preferred dividends. Additionally,
substantially all of the Company's assets relate to the Company's property
rental operations. Asset cost, depreciation and amortization by segment are
not presented because such information is not reported internally at the
segment level.
- 8 -
11
POST PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
Summarized financial information concerning the Company's reportable segments is
shown in the following tables:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------- ---------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
REVENUES
Fully stabilized communities ................................ $ 64,709 $ 62,068 $ 128,560 $ 123,159
Communities stabilized during 1999 .......................... 10,642 9,409 21,094 17,754
Development and lease-up communities ........................ 12,105 3,229 21,463 5,404
Communities held for sale ................................... 2,093 2,014 4,063 3,967
Sold communities ............................................ 224 2,013 1,513 3,766
Third party services ........................................ 3,932 3,276 6,942 5,877
Other ....................................................... 5,777 3,495 11,290 6,468
---------- ---------- ---------- ----------
Consolidated revenues ....................................... $ 99,482 $ 85,504 $ 194,925 $ 166,395
========== ========== ========== ==========
CONTRIBUTION TO FUNDS FROM OPERATIONS
Fully stabilized communities ................................ $ 44,698 $ 42,278 $ 89,732 $ 85,181
Communities stabilized during 1999 .......................... 7,362 6,337 14,411 11,743
Development and lease-up communities ........................ 7,107 1,612 12,280 2,818
Communities held for sale ................................... 1,428 1,434 2,730 2,789
Sold communities ............................................ 224 1,704 1,652 2,981
Third party services ........................................ 723 456 940 678
---------- ---------- ---------- ----------
Contribution to FFO ......................................... 61,542 53,821 121,745 106,190
---------- ---------- ---------- ----------
Other operating income, net of expense ...................... 577 558 436 332
Depreciation on non-real estate assets ...................... (634) (505) (1,210) (898)
Minority interest in consolidated property
partnerships ............................................. 260 (185) 815 (276)
Interest expense ............................................ (12,062) (8,150) (22,763) (15,368)
Amortization of deferred loan costs ......................... (400) (370) (784) (706)
General and administrative .................................. (1,669) (1,765) (4,166) (4,148)
Dividends to preferred shareholders ......................... (2,969) (2,969) (5,938) (5,938)
---------- ---------- ---------- ----------
Total FFO ................................................... 44,645 40,435 88,135 79,188
---------- ---------- ---------- ----------
Depreciation on real estate assets .......................... (15,280) (13,780) (31,174) (26,097)
Net gain (loss) on sale of assets ........................... (18) 476 669 (1,091)
Minority interest of common unitholders in
Operating Partnership .................................... (3,423) (3,237) (6,743) (6,229)
Dividends to preferred shareholders ......................... 2,969 2,969 5,938 5,938
---------- ---------- ---------- ----------
Income before extraordinary item
and preferred dividends .................................. $ 28,893 $ 26,863 $ 56,825 $ 51,709
========== ========== ========== ==========
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12
POST APARTMENT HOMES, L.P.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
JUNE 30, DECEMBER 31,
2000 1999
----------- ------------
(UNAUDITED)
ASSETS
Real estate:
Land .................................................................. $ 294,448 $ 277,784
Building and improvements ............................................. 1,681,015 1,574,158
Furniture, fixtures and equipment ..................................... 165,561 137,602
Construction in progress .............................................. 531,250 576,361
Land held for future development ...................................... 21,181 16,880
----------- -----------
2,693,455 2,582,785
Less: accumulated depreciation ........................................ (327,195) (303,016)
Assets held for sale .................................................. 50,579 --
----------- -----------
Real estate assets ...................................................... 2,416,839 2,279,769
Cash and cash equivalents ............................................... 15,214 5,870
Restricted cash ......................................................... 1,502 1,380
Deferred charges, net ................................................... 21,103 20,820
Other assets ............................................................ 59,010 42,334
----------- -----------
Total assets .......................................................... $ 2,513,668 $ 2,350,173
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Notes payable ........................................................... $ 1,125,028 $ 989,583
Accrued interest payable ................................................ 9,054 9,160
Distributions payable ................................................... 37,367 31,285
Accounts payable and accrued expenses ................................... 71,848 59,780
Security deposits and prepaid rents ..................................... 10,066 9,023
----------- -----------
Total liabilities ..................................................... 1,253,363 1,098,831
----------- -----------
Partners' equity ........................................................ 1,260,305 1,251,342
----------- -----------
Total liabilities and partners' equity ................................ $ 2,513,668 $ 2,350,173
=========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
- 10 -
13
POST APARTMENT HOMES, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------- ----------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
REVENUES
Rental .................................................... $ 90,243 $ 78,098 $ 178,067 $ 153,683
Property management - third party ......................... 933 768 1,841 1,639
Landscape services - third party .......................... 2,999 2,508 5,101 4,238
Interest .................................................. 448 305 987 370
Other ..................................................... 4,859 3,825 8,929 6,465
----------- ----------- ----------- -----------
Total revenue ...................................... 99,482 85,504 194,925 166,395
----------- ----------- ----------- -----------
EXPENSES
Property operating and maintenance (exclusive of items
shown separately below) .................................. 32,238 28,305 62,890 54,674
Depreciation expense ...................................... 16,430 14,285 33,436 26,995
Property management - third party ......................... 730 706 1,518 1,425
Landscape services - third party .......................... 2,479 2,114 4,484 3,774
Interest .................................................. 12,062 8,150 22,763 15,368
Amortization of deferred loan costs ....................... 400 370 784 706
General and administrative ................................ 1,669 1,765 4,166 4,148
Minority interest in consolidated property partnerships ... (260) 185 (815) 276
----------- ----------- ----------- -----------
Total expenses ........................................... 65,748 55,880 129,226 107,366
----------- ----------- ----------- -----------
Income before net gain (loss) on sale of assets
and extraordinary item .................................... 33,734 29,624 65,699 59,029
Net gain (loss) on sale of assets ......................... (18) 476 669 (1,091)
----------- ----------- ----------- -----------
Income before extraordinary item .......................... 33,716 30,100 66,368 57,938
Extraordinary item ........................................ -- -- -- (521)
----------- ----------- ----------- -----------
Net income ................................................ 33,716 30,100 66,368 57,417
Distributions to preferred unitholders .................... (4,369) (2,969) (8,738) (5,938)
----------- ----------- ----------- -----------
Net income available to common unitholders ................ $ 29,347 $ 27,131 $ 57,630 $ 51,479
=========== =========== =========== ===========
EARNINGS PER COMMON UNIT - BASIC
Income before extraordinary item (net of preferred
distributions) ........................................... $ 0.66 $ 0.62 $ 1.30 $ 1.19
Extraordinary item ........................................ -- -- -- (0.01)
----------- ----------- ----------- -----------
Net income available to common unitholders ................ $ 0.66 $ 0.62 $ 1.30 $ 1.18
=========== =========== =========== ===========
Weighted average common units outstanding ................. 44,480,337 43,559,609 44,349,766 43,462,809
=========== =========== =========== ===========
EARNINGS PER COMMON UNIT- DILUTED
Income before extraordinary item (net of preferred
distributions) ........................................... $ 0.65 $ 0.61 $ 1.28 $ 1.18
Extraordinary item ........................................ -- -- -- (0.01)
----------- ----------- ----------- -----------
Net income available to common unitholders ................ $ 0.65 $ 0.61 $ 1.28 $ 1.17
=========== =========== =========== ===========
Weighted average common units outstanding ................. 45,316,683 44,142,487 44,943,560 43,894,329
=========== =========== =========== ===========
Distributions declared ................................... $ 0.76 $ 0.70 $ 1.52 $ 1.40
=========== =========== =========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
- 11 -
14
POST APARTMENT HOMES, L.P.
CONSOLIDATED STATEMENT OF PARTNERS' EQUITY
(DOLLARS IN THOUSANDS)
(UNAUDITED)
GENERAL LIMITED
PARTNER PARTNERS TOTAL
---------- ---------- ----------
PARTNERS' EQUITY, DECEMBER 31, 1999 ................. $ 11,993 $1,239,349 $1,251,342
Contributions from the Company related to Dividend
Reinvestment and Employee Stock Purchase Plans ... 189 18,750 18,939
Distributions to preferred unitholders .............. -- (8,738) (8,738)
Distributions to common unitholders ................. (676) (66,930) (67,606)
Net income .......................................... 664 65,704 66,368
---------- ---------- ----------
PARTNERS' EQUITY, JUNE 30, 2000 ..................... $ 12,170 $1,248,135 $1,260,305
========== ========== ==========
The accompanying notes are an integral part of these
consolidated financial statements.
- 12 -
15
POST APARTMENT HOMES, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
-----------------------------
2000 1999
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ................................................................. $ 66,368 $ 57,417
Adjustments to reconcile net income to net cash provided
by operating activities:
Net (gain) loss on sale of assets ....................................... (669) 1,091
Extraordinary item ...................................................... -- 521
Depreciation ............................................................ 33,436 26,995
Amortization of deferred loan costs ..................................... 784 706
Changes in assets, (increase) decrease in:
Restricted cash ......................................................... (122) (168)
Other assets ............................................................ (16,676) (10,070)
Deferred charges ........................................................ (2,039) (1,051)
Changes in liabilities, increase (decrease) in:
Accrued interest payable ................................................ (106) (143)
Accounts payable and accrued expenses ................................... 7,005 3,203
Security deposits and prepaid rents ..................................... 1,043 213
---------- ----------
Net cash provided by operating activities ............................... 89,024 78,714
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Construction and acquisition of real estate assets,
net of payables ......................................................... (174,263) (134,855)
Proceeds from sale of assets .............................................. 31,415 10,007
Capitalized interest ...................................................... (11,867) (9,568)
Recurring capital expenditures ............................................ (4,462) (4,679)
Corporate additions and improvements ...................................... (1,326) (2,360)
Non-recurring capital expenditures ........................................ (1,438) (1,013)
Revenue generating capital expenditures ................................... (2,189) (2,114)
---------- ----------
Net cash (used in) investing activities ................................... (164,130) (144,582)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Payment of financing costs ................................................. -- (1,495)
Debt proceeds .............................................................. 200,000 155,000
Debt payments .............................................................. (64,555) (53,491)
Proceeds from contributions from PPI related to Dividend
Reinvestment and Employee Stock Purchase Plans .......................... 19,268 9,051
Distributions paid to preferred unitholders ................................ (5,769) (5,938)
Distributions paid to common unitholders ................................... (64,494) (55,488)
---------- ----------
Net cash provided by financing activities .................................. 84,450 47,639
---------- ----------
Net increase (decrease) in cash and cash equivalents ....................... 9,344 (18,229)
Cash and cash equivalents, beginning of period ............................. 5,870 21,154
---------- ----------
Cash and cash equivalents, end of period ................................... $ 15,214 $ 2,925
========== ==========
The accompanying notes are an integral part of these
consolidated financial statements.
- 13 -
16
POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT APARTMENT UNIT DATA)
1. ORGANIZATION AND FORMATION OF THE COMPANY
ORGANIZATION AND FORMATION OF THE COMPANY
Post Apartment Homes, L.P. (the "Operating Partnership"), a Georgia
limited partnership, was formed on January 22, 1993, to conduct the
business of developing, leasing and managing upscale multi-family
apartment communities for Post Properties, Inc. (the "Company").
The Company elected to be taxed as a real estate investment trust
("REIT") for Federal income tax purposes beginning with the taxable
year ended December 31, 1993. A REIT is a legal entity which holds real
estate interests and, through payments of dividends to shareholders, in
practical effect is not subject to Federal income taxes at the
corporate level.
BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared by
the Operating Partnership's management in accordance with generally
accepted accounting principles for interim financial information and
applicable rules and regulations of the Securities and Exchange
Commission. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all
adjustments (consisting only of normally recurring adjustments)
considered necessary for a fair presentation have been included. The
results of operations for the six month period ended June 30, 2000 are
not necessarily indicative of the results that may be expected for the
full year. These financial statements should be read in conjunction
with the Operating Partnership's audited financial statements and notes
thereto included in the Post Apartment Homes, L.P. Annual Report on
Form 10-K for the year ended December 31, 1999. Certain 1999 amounts
have been reclassified to conform to the current year's financial
statement presentation.
2. NOTES PAYABLE
Post Apartment Homes, L.P. (the "Operating Partnership") has
established a program for the sale of Medium-Term Notes due three
months or more from date of issue (the "MTN Program"). A $30,000 Medium
Term Note was repaid on March 3, 2000.
On May 9, 2000, the Operating Partnership sold $25,000 aggregate
principal amount of notes under the MTN Program. These notes bear
interest at the London Interbank Offer Rate ("LIBOR") plus .75% and
mature on February 1, 2005. Net proceeds of $24,875 were used to repay
outstanding indebtedness.
On June 16, 2000, the Operating Partnership sold $150,000 aggregate
principal amount of notes under the MTN Program. These notes bear
interest at 8.12% and mature on June 15, 2005. Net proceeds of $148,865
were used to repay outstanding indebtedness.
As of June 30, 2000, the Operating Partnership had $360,000 aggregate
principal amount of notes outstanding under the MTN Program.
3. SALE OF ASSETS AND ASSETS HELD FOR SALE
During the first quarter of 2000, the Operating Partnership authorized
the sale of five communities, one community in Atlanta, Georgia, three
communities in Jackson, Mississippi and one commercial property in
Dallas, Texas. In February 2000, the Operating Partnership sold the 213
unit community in Atlanta, Georgia for $32,350. Net proceeds of
approximately $31,400 were used to pay down outstanding indebtedness.
At June 30, 2000, the remaining four properties consisting of land,
building and improvements and furniture, fixtures and equipment were
recorded at $50,579, which represented the lower of cost or fair value
less costs to sell. The Operating Partnership
-14-
17
POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT APARTMENT UNIT DATA)
has recorded a gain on the sale of the Atlanta community, reduced by
its best estimate of the effect of anticipated sales of the remaining
properties in the statement of operations as net gain on the sale of
assets of $669. The Operating Partnership expects the sale of the
remaining four properties to occur during the current fiscal year.
For the three months ended June 30, 2000 and 1999, the consolidated
statement of operations includes net income of $1,428 and $1,434,
respectively, from communities held for sale at June 30, 2000. For the
six months ended June 30, 2000 and 1999, the consolidated statement of
operations includes net income of $2,730 and $2,789, respectively, from
communities held for sale at June 30, 2000. Depreciation expense
totaling $477 was recognized on these assets prior to the assets being
classified as held for sale. Depreciation expense has not been
recognized subsequent to the date of held for sale classification.
4. EARNINGS PER UNIT
For the three and six months ended June 30, 2000 and 1999, a
reconciliation of the numerator and denominator used in the computation
of basic and diluted earnings per unit is as follows:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------ ------------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
Basic and diluted income available to common
unitholders (numerator):
Income before extraordinary item ............... $ 33,716 $ 30,100 $ 66,368 $ 57,938
Less: Preferred unit distributions ........... (4,369) (2,969) (8,738) (5,938)
------------ ------------ ------------ ------------
Income available to common unitholders
before extraordinary item .................... $ 29,347 $ 27,131 $ 57,630 $ 52,000
============ ============ ============ ============
Common units (denominator):
Weighted average units outstanding - basic ..... 44,480,337 43,559,609 44,349,766 43,462,809
Incremental units from assumed conversion
of options ................................... 836,346 582,878 593,794 431,520
------------ ------------ ------------ ------------
Weighted average units outstanding - diluted ... 45,316,683 44,142,487 44,943,560 43,894,329
============ ============ ============ ============
5. NEW ACCOUNTING PRONOUNCEMENTS
On June 15, 1998, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 133, "Accounting
for Derivative Instruments and Hedging Activities" (FAS 133). FAS 133,
as amended by FAS 137, "Deferral of the Effective Date of FAS 133," is
effective for all fiscal quarters of all fiscal years beginning after
June 15, 2000 (January 1, 2001 for the Operating Partnership). FAS 133
requires that all derivative instruments be recorded on the balance
sheet at their fair value. Changes in the fair value of derivatives are
recorded each period in current earnings or other comprehensive income,
depending on whether a derivative is designated as part of a hedge
transaction and, if it is, the type of hedge transaction. Management of
the Operating Partnership anticipates that, due to its limited use of
derivative instruments, the adoption of FAS 133 will not have a
significant effect on the Operating Partnership's results of operations
or its financial position.
The Securities and Exchange Commission (SEC) issued Staff Accounting
Bulletin No. 101 (SAB 101), Revenue Recognition, which provides
guidance on the recognition, presentation, and disclosure of revenue in
financial statements. SAB 101 is required to be implemented in the
fourth fiscal quarter of 2000. Management of the Operating Partnership
anticipates that the adoption of SAB 101 will not have a significant
effect on the Operating Partnership's results of operations or its
financial position.
-15-
18
POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT APARTMENT UNIT DATA)
6. SEGMENT INFORMATION
SEGMENT DESCRIPTION
The Operating Partnership adopted SFAS No. 131, "Disclosure About the
Segments of an Enterprise and Related Information" in the fourth
quarter of 1998. SFAS No. 131 requires companies to present segment
information based on the way that management organizes the segments
within the enterprise for making operating decisions and assessing
performance. The segment information is prepared on substantially the
same basis as the internally reported information used by the Operating
Partnership's chief operating decision makers to manage the business.
The Operating Partnership's chief operating decision makers focus on
the Operating Partnership's primary sources of income, which are
property rental operations and third party services. Property rental
operations are broken down into five segments based on the various
stages in the property ownership lifecycle. Third party services are
designated as one segment. The Operating Partnership's five segments
are further described as follows:
Property Rental Operations
- Fully stabilized communities - those communities which have
been stabilized (the point in time which a property reached
95% occupancy or one year after completion of construction)
for both the current and prior year.
- Communities stabilized during 1999 - communities which reached
stabilized occupancy in the prior year.
- Development and Lease up Communities - those communities which
are in lease-up but were not stabilized by the beginning of
the current year including communities which stabilized during
the current year.
- Communities held for sale - those communities that are
currently being actively marketed for sale.
- Sold communities - communities which were sold in the current
or prior year.
Third Party Services - fee income and related expenses from the
Operating Partnership's apartment community management, landscaping and
corporate apartment rental services.
SEGMENT PERFORMANCE MEASURE
Management uses contribution to funds from operations ("FFO") as the
performance measure for its segments. Effective January 1, 2000, FFO is
defined by the National Association of Real Estate Investment Trusts as
net income available to common shareholders determined in accordance
with generally accepted accounting principles ("GAAP"), excluding gains
(or losses) from debt restructuring and sales of property, plus
depreciation of real estate assets, and after adjustment for
unconsolidated partnerships and joint ventures. FFO should not be
considered as an alternative to net income (determined in accordance
with GAAP) as an indicator of the Operating Partnership's financial
performance or to cash flow from operating activities (determined in
accordance with GAAP) as a measure of the Operating Partnership's
liquidity, nor is it necessarily indicative of sufficient cash flow to
fund all of the Operating Partnership's needs.
SEGMENT INFORMATION
The following table reflects each segment's contribution to FFO
together with a reconciliation of segment contribution to FFO, total
FFO and income before extraordinary item. Additionally, substantially
all of the Operating Partnership's assets relate to the Operating
Partnership's property rental operations. Asset cost, depreciation and
amortization by segment are not presented because such information is
not reported internally at the segment level.
-16-
19
POST APARTMENT HOMES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT APARTMENT UNIT DATA)
Summarized financial information concerning the Operating Partnership's
reportable segments is shown in the following tables.
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- --------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
REVENUES
Fully stabilized communities ..................... $ 64,709 $ 62,068 $ 128,560 $ 123,159
Communities stabilized during 1999 ............... 10,642 9,409 21,094 17,754
Development and lease-up communities ............. 12,105 3,229 21,463 5,404
Communities held for sale ........................ 2,093 2,014 4,063 3,967
Sold communities ................................. 224 2,013 1,513 3,766
Third party services ............................. 3,932 3,276 6,942 5,877
Other ............................................ 5,777 3,495 11,290 6,468
---------- ---------- ---------- ----------
Consolidated revenues ............................ $ 99,482 $ 85,504 $ 194,925 $ 166,395
========== ========== ========== ==========
CONTRIBUTION TO FUNDS FROM OPERATIONS
Fully stabilized communities ..................... $ 44,698 $ 42,278 $ 89,732 $ 85,181
Communities stabilized during 1999 ............... 7,362 6,337 14,411 11,743
Development and lease-up communities ............. 7,107 1,612 12,280 2,818
Communities held for sale ........................ 1,428 1,434 2,730 2,789
Sold communities ................................. 224 1,704 1,652 2,981
Third party services ............................. 723 456 940 678
---------- ---------- ---------- ----------
Contribution to FFO .............................. 61,542 53,821 121,745 106,190
---------- ---------- ---------- ----------
Other operating income, net of expense ........... 1,977 558 3,236 332
Depreciation on non-real estate assets ........... (634) (505) (1,210) (898)
Minority interest in consolidated property
partnership ...................................... 260 (185) 815 (276)
Interest expense ................................. (12,062) (8,150) (22,763) (15,368)
Amortization of deferred loan costs .............. (400) (370) (784) (706)
General and administrative ....................... (1,669) (1,765) (4,166) (4,148)
Distributions to preferred unitholders ........... (4,369) (2,969) (8,738) (5,938)
---------- ---------- ---------- ----------
Total FFO ........................................ 44,645 40,435 88,135 79,188
---------- ---------- ---------- ----------
Depreciation on real estate assets ............... (15,280) (13,780) (31,174) (26,097)
Net gain (loss) on sale of assets ................ (18) 476 669 (1,091)
Distributions to preferred unitholders ........... 4,369 2,969 8,738 5,938
---------- ---------- ---------- ----------
Income before extraordinary item and preferred
distributions .................................... $ 33,716 $ 30,100 $ 66,368 $ 57,938
========== ========== ========== ==========
-17-
20
MANAGEMENT'S DISCUSSION AND ANALYSIS
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT APARTMENT UNIT DATA)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The following discussion should be read in conjunction with all of the financial
statements appearing elsewhere in this report. The following discussion is based
primarily on the Consolidated Financial Statements of Post Properties, Inc. (the
"Company") and Post Apartment Homes, L.P. (the "Operating Partnership"). Except
for the effect of minority interest in the Operating Partnership, the following
discussion with respect to the Company is the same for the Operating
Partnership.
As of June 30, 2000, there were 44,592,667 units in the Operating Partnership
outstanding, of which 39,411,256, or 88.4%, were owned by the Company and
5,181,411, or 11.6%, were owned by other limited partners (including certain
officers and directors of the Company). As of June 30, 2000, there were
7,800,000 preferred units outstanding, of which 5,000,000 were owned by the
Company.
RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999
The Company recorded net income available to common shareholders of $25,924 and
$50,887 for the three and six months ended June 30, 2000, respectively,
increases of 8.5% and 12.3%, respectively, over the corresponding periods in
1999 primarily as a result of additional units placed in service through the
development of new communities and increases in rental rates on existing units.
COMMUNITY OPERATIONS
The Company's net income is generated primarily from the operation of its
apartment communities. For purposes of evaluating comparative operating
performance, the Company categorizes its operating communities based on the
period each community reaches stabilized occupancy. A community is generally
considered by the Company to have achieved stabilized occupancy on the earlier
to occur of (i) attainment of 95% physical occupancy on the first day of any
month or (ii) one year after completion of construction.
As of June 30, 2000, the Company's portfolio of apartment communities consisted
of the following: (i) 71 communities which were completed and stabilized for all
of the current and prior year, (ii) eight communities which achieved full
stabilization during the prior year (iii) 23 communities either stabilized in
the current year or presently in the development or lease-up stages and (iv)
three communities that are currently under contract for sale.
For communities with respect to which construction is completed and the
community has become fully operational, all property operating and maintenance
expenses are expensed as incurred and those recurring and non-recurring
expenditures relating to acquiring new assets, materially enhancing the value of
an existing asset, or substantially extending the useful life of an existing
asset are capitalized. (See "Capitalization of Fixed Assets and Community
Improvements").
Since its inception, the Company has applied an accounting policy related to
communities in the development and lease-up stage whereby substantially all
operating expenses (including pre-opening marketing expenses) are expensed as
incurred. The Company treats each unit in an apartment community separately for
cost accumulation, capitalization and expense recognition purposes. Prior to the
commencement of leasing activities, interest and other construction costs are
capitalized and reflected on the balance sheet as construction in progress. Once
a unit is placed in service, all operating expenses allocated to that unit,
including interest, are expensed as incurred. During the lease-up phase, the sum
of interest expense on completed units and other operating expenses (including
pre-opening marketing expenses)
-18-
21
MANAGEMENT'S DISCUSSION AND ANALYSIS
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT APARTMENT UNIT DATA)
will typically exceed rental revenues, resulting in a "lease-up deficit," which
continues until such time as rental revenues exceed such expenses. Lease up
deficits for the three and six months ended June 30, 2000 were $765 and $1,617,
respectively. Lease up deficits for the three and six months ended June 30, 1999
were $688 and $1,097, respectively.
In order to evaluate the operating performance of its communities, the Company
has presented financial information which summarizes the operating income on a
comparative basis for all of its operating communities combined and for
communities which have reached stabilization prior to January 1, 1999.
ALL OPERATING COMMUNITIES
The operating performance for all of the Company's apartment communities
combined for the three and six months ended June 30, 2000 and 1999 is summarized
as follows:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------------- ----------------------------------
2000 1999 % CHANGE 2000 1999 % CHANGE
-------- -------- -------- -------- -------- --------
Rental and other revenue:
Mature communities (1) ........................... $ 64,709 $ 62,068 4.3% $128,560 $123,159 4.4%
Communities stabilized during 1999 ............... 10,642 9,409 13.1% 21,094 17,754 18.8%
Development and lease-up communities (2) ......... 12,105 3,229 274.9% 21,463 5,404 297.2%
Communities held for sale (3) .................... 2,093 2,014 3.9% 4,063 3,967 2.4%
Sold communities (4) ............................. 224 2,013 (88.9)% 1,513 3,766 (59.8)%
Other revenue (5) ................................ 5,329 3,190 67.0% 10,303 6,098 68.9%
-------- -------- -------- --------
95,102 81,923 16.1% 186,996 160,148 16.8%
-------- -------- -------- --------
Property operating and maintenance expense
(exclusive of depreciation and amortization):
Mature communities (1) ........................... 20,011 19,790 1.1% 38,828 37,978 2.2%
Communities stabilized during 1999 ............... 3,280 3,072 6.8% 6,683 6,011 11.2%
Development and lease-up communities (2) ......... 4,998 1,617 209.1% 9,183 2,586 255.1%
Communities held for sale (3) .................... 665 580 14.7% 1,333 1,178 13.2%
Sold communities (4) ............................. -- 309 (100.0)% (139) 785 (117.7)%
Other expenses (6) ............................... 3,284 2,937 11.8% 7,002 6,136 14.1%
-------- -------- -------- --------
32,238 28,305 13.9% 62,890 54,674 15.0%
-------- -------- -------- --------
Revenue in excess of specified expense ........... $ 62,864 $ 53,618 17.2% $124,106 $105,474 17.7%
======== ======== ======== ========
Recurring capital expenditures: (7)
Carpet ......................................... $ 619 $ 700 (11.6)% $ 1,410 $ 1,407 0.2%
Other .......................................... 1,905 2,106 (9.5)% 3,052 3,272 (6.7)%
-------- -------- -------- --------
Total .......................................... $ 2,524 $ 2,806 (10.0)% $ 4,462 $ 4,679 (4.6)%
======== ======== ======== ========
Average apartment units in service ............... 31,418 29,138 7.8% 31,182 28,944 7.7%
======== ======== ======== ========
Recurring capital expenditures per
apartment unit ................................. $ 80 $ 96 (16.7)% $ 143 $ 162 (11.7)%
======== ======== ======== ========
(1) Communities which reached stabilization prior to January 1, 1999.
(2) Communities in the "construction", "development" or "lease-up" stage
during 1999 and, therefore, not considered fully stabilized for all of
the periods presented.
(3) Includes three communities in Mississippi and one commercial property
in Texas.
(4) Includes one community, containing 213 units, which was sold on
February 4, 2000. The credit in property operating and maintenance
expenses resulted from a true-up of 1999 property taxes.
(5) Includes revenue from furnished apartment rentals above the unfurnished
rental rates, revenue from commercial properties and other revenue not
directly related to property operations.
(6) Includes certain indirect central office operating expenses related to
management, grounds maintenance, costs associated with furnished
apartment rentals and operating expenses from commercial properties.
(7) In addition to these expenses which relate to property operations, the
Company incurs recurring and non-recurring expenditures relating to
acquiring new assets, materially enhancing the value of an existing
asset or substantially extending the useful life of an existing asset,
all of which are capitalized.
-19-
22
MANAGEMENT'S DISCUSSION AND ANALYSIS
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT APARTMENT UNIT DATA)
For the three and six months ended June 30, 2000, rental and other revenue
increased $13,179, or 16.1%, and $26,848, or 16.8%, respectively, compared to
the same periods in the prior year primarily as a result of the completion of
new communities, increased rental rates for existing communities, increased
revenue from commercial properties and other ancillary income. For the three and
six months ended June 30, 2000, property operating and maintenance expenses
increased $3,933, or 13.9%, and $8,216, or 15.0%, respectively, compared to the
same periods in the prior year, primarily as a result of the completion of new
communities.
For the three and six months ended June 30, 2000, recurring capital expenditures
decreased $282, or 10.0% ($16, or 16.7% on a per unit apartment basis), and
$217, or 4.6% ($19, or 11.7% on a per unit apartment basis), respectively,
compared to the same periods in the prior year, primarily due to the timing of
capital expenditures.
-20-
23
MANAGEMENT'S DISCUSSION AND ANALYSIS
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT APARTMENT UNIT DATA)
MATURE COMMUNITIES
The Company defines mature communities as those which have reached stabilization
prior to the beginning of the previous calendar year.
The operating performance of the 71 communities containing an aggregate of
24,006 units which were fully stabilized as of January 1, 1999, is summarized as
follows:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------------- ----------------------------------
% %
2000 1999 CHANGE 2000 1999 CHANGE
-------- -------- ------ -------- -------- ------
Rental and other revenue (1) ................ $ 64,709 $ 62,068 4.3% $128,560 $123,159 4.4%
Property operating and maintenance
expense (exclusive of depreciation and
amortization) (1) ........................ 20,011 19,790 1.1% 38,828 37,978 2.2%
-------- -------- -------- --------
Revenue in excess of specified expense ...... $ 44,698 $ 42,278 5.7% $ 89,732 $ 85,181 5.3%
-------- -------- -------- --------
Recurring capital expenditures: (2)
Carpet ................................... $ 590 $ 676 (12.7)% $ 1,357 $ 1,335 1.6%
Other .................................... 1,780 1,981 (10.1)% 2,854 3,049 (6.4)%
-------- -------- -------- --------
Total .................................... $ 2,370 $ 2,657 (10.8)% $ 4,211 $ 4,384 (3.9)%
======== ======== ======== ========
Recurring capital expenditures per
apartment unit (3) ....................... $ 99 $ 111 (10.8)% $ 175 $ 183 (4.4)%
======== ======== ======== ========
Average economic occupancy (4) .............. 96.8% 96.6% 0.2% 96.8% 96.4% 0.4%
======== ======== ======== ========
Average monthly rental rate per
apartment unit (5) ....................... $ 897 $ 860 4.3% $ 894 $ 857 4.3%
======== ======== ======== ========
Apartment units in service .................. 24,006 24,006 24,006 24,006
======== ======== ======== ========
(1) Communities which reached stabilization prior to January 1, 1999.
(2) In addition to those expenses which relate to property operations, the
Company incurs recurring and non-recurring expenditures relating to
acquiring new assets, materially enhancing the value of an existing
asset, or substantially extending the useful life of an existing asset,
all of which are capitalized.
(3) In addition to such capitalized expenditures, the Company expensed $161
and $170 per unit on building maintenance (inclusive of direct
salaries) and $57 and $66 per unit on landscaping (inclusive of direct
salaries) for the three months ended June 30, 2000 and 1999,
respectively.
(4) Average economic occupancy is defined as gross potential rent less
vacancy losses, model expenses and bad debt divided by gross potential
rent for the period, expressed as a percentage. The calculation of
average economic occupancy does not include a deduction for concessions
and employee discounts. Average economic occupancy, including these
amounts would have been 94.5% and 95.3% for the three months ended June
30, 2000 and 1999, respectively. For the three months ended June 30,
2000 and 1999, concessions were $1,215 and $611, respectively, and
employee discounts were $286 and $157, respectively.
(5) Average monthly rental rate is defined as the average of the gross
actual rates for occupied units and the anticipated rental rates for
unoccupied units.
For the three and six months ended June 30, 2000, rental and other revenue
increased $2,641, or 4.3%, and $5,401, or 4.4%, respectively, compared to the
same periods in the prior year, primarily due to increased rental rates. For the
three and six months ended June 30, 2000, property operating and maintenance
expenses (exclusive of depreciation and amortization) increased $221, or 1.1%,
and $850, or 2.2%, respectively, compared to the same periods in the prior year,
primarily as a result of increased personnel expense partially offset by a
decline in advertising and promotion expense.
For the three and six months ended June 30, 2000, recurring capital expenditures
per unit decreased $12, or 10.8%, and $8, or 4.4%, respectively, compared to the
same periods in the prior year, as a result of the timing of expenditures.
-21-
24
MANAGEMENT'S DISCUSSION AND ANALYSIS
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT APARTMENT UNIT DATA)
THIRD PARTY SERVICES
THIRD PARTY MANAGEMENT SERVICES
The Company provides asset management, leasing and other consulting services to
non-related owners of apartment communities through its subsidiary, RAM
Partners, Inc. ("RAM"). The operating performance of RAM for the three and six
months ended June 30, 2000 and 1999 is summarized as follows:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------------- --------------------------------
2000 1999 % CHANGE 2000 1999 % CHANGE
-------- -------- -------- -------- -------- --------
Property management and other revenue ............ $ 933 $ 768 21.5% $ 1,841 $ 1,639 12.3%
Property management expense ...................... 730 706 3.4% 1,518 1,425 6.5%
Depreciation expense ............................. 7 6 16.7% 14 13 7.7%
-------- -------- -------- --------
Revenue in excess of specified expense ........... $ 196 $ 56 250.0% $ 309 $ 201 53.7%
======== ======== ======== ========
Average apartment units managed .................. 14,098 12,346 14.2% 13,916 12,148 14.6%
======== ======== ======== ========
The increase in revenue in excess of specified expense for the three and six
months ended June 30, 2000 compared to the same periods in the prior year is
primarily attributable to an increase in the average number of units managed.
THIRD PARTY LANDSCAPE SERVICES
The Company provides landscape maintenance, design and installation services to
non-related parties through a subsidiary, Post Landscape Group, Inc. ("Post
Landscape Group"), formerly called Post Landscape Services, Inc.
The operating performance of Post Landscape Group for the three and six months
ended June 30, 2000 and 1999 is summarized as follows:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------- --------------------------------
2000 1999 % CHANGE 2000 1999 % CHANGE
-------- -------- -------- -------- -------- --------
Landscape services and other revenue...... $ 2,999 $ 2,508 19.6% $ 5,101 $ 4,238 20.4%
Landscape services expense................ 2,479 2,114 17.3% 4,484 3,774 18.8%
Depreciation expense...................... 90 73 23.3% 177 134 32.1%
-------- -------- -------- --------
Revenue in excess of specified expense.... $ 430 $ 321 34.0% $ 440 $ 330 33.3%
======== ======== ======== ========
The increase in landscape services and other revenue, landscape services expense
and general and administrative expense for the three and six months ended June
30, 2000 compared to the same periods in 1999 is primarily due to increases in
landscape contracts. The increase in depreciation expense is primarily due to
the additions of vehicles and equipment.
-22-
25
MANAGEMENT'S DISCUSSION AND ANALYSIS
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT APARTMENT UNIT DATA)
OTHER EXPENSES
Depreciation expense increased $2,145, or 15.0%, and $6,441, or 23.9%,
respectively, for the three and six months ended June 30, 2000 compared to the
same periods in the prior year, primarily as a result of an increase in units in
service, additional leasehold improvements and technology expenditures.
General and administrative expense remained relatively consistent for the three
and six months ended June 30, 2000 compared to the same period in the prior
year.
The extraordinary item of $458 for the six months ended June 30, 1999, net of
minority interest portion, was due to the write off of loan costs resulting from
the early extinguishment of debt.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
The Company's net cash provided by operating activities increased from $78,714
for the six months ended June 30, 1999 to $89,024 for the six months ended June
30, 2000, principally due to an increase in net income and an increase in other
assets related to tax increment financing receivables associated with public and
private development projects and executive loans. Net cash used in investing
activities increased from $144,582 in the six months ended June 30, 1999 to
$164,130 in the six months ended June 30, 2000 principally due to increased
construction spending partially offset by proceeds from the sale of one
community in February 2000. The Company's net cash provided by financing
activities increased from $47,639 for the six months ended June 30, 1999 to
$84,450 for the six months ended June 30, 2000, primarily due to proceeds from
the sale of notes partially offset by increased debt payments.
The Company has elected to be taxed as a Real Estate Investment Trust ("REIT")
under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended,
commencing with its taxable year ended December 31, 1993. REITs are subject to a
number of organizational and operational requirements, including a requirement
that they currently distribute 95% of their ordinary taxable income. The Company
generally will not be subject to Federal income tax on net income.
At June 30, 2000, the Company had total indebtedness of $1,125,028, an increase
of $135,445 from its total indebtedness at December 31, 1999, and cash and cash
equivalents of $15,214. At June 30, 2000, the Company's indebtedness included
approximately $156,735 in conventional mortgages payable secured by individual
communities, tax-exempt bond indebtedness of $235,880, senior unsecured notes of
$535,000, borrowings under the Revolver of $190,000 and other unsecured lines of
credit and unsecured debt of $7,413.
The Company expects to meet its short-term liquidity requirements generally
through its net cash provided by operations and borrowings under credit
arrangements and expects to meet certain of its long-term liquidity
requirements, such as scheduled debt maturities, repayment of financing of
construction and development activities, and possible property acquisitions,
through long-term secured and unsecured borrowings and the issuance of debt
securities or additional equity securities of the Company, sales of communities,
or, possibly in connection with acquisitions of land or improved properties,
units of the Operating Partnership. The Company believes that its net cash
provided by operations will be adequate and anticipates that it will continue to
be adequate to meet both operating requirements and payment of dividends by the
Company in accordance with REIT requirements in both the short and the long
term. The budgeted expenditures for improvements and renovations to certain of
the communities are expected to be funded from property operations.
-23-
26
MANAGEMENT'S DISCUSSION AND ANALYSIS
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT APARTMENT UNIT DATA)
Lines Of Credit
During the first quarter, the Operating Partnership extended the maturity date
on its syndicated unsecured lines of credit (the "Revolver") by one year to
April 30, 2003. Borrowing under the Revolver bears interest at LIBOR plus .825%
or prime minus .25%. Also during the first quarter, the Company reached an
agreement with a syndicated group of banks for an incremental $200,000, 364 day
facility at terms equal to the Revolver. At June 30, 2000, there was $190,000
outstanding under the Revolver and $5,413 outstanding under other lines of
credit.
Medium Term Notes
The Operating Partnership has established a program for the sale of Medium Term
Notes due three months or more from date of issue (the "MTN Program"). A $30,000
Medium Term Note was repaid on March 3, 2000.
On May 9, 2000, the Operating Partnership sold $25,000 aggregate principal
amount of notes under the MTN Program. These notes bear interest at the London
Interbank Offer Rate ("LIBOR") plus .75% and mature on February 1, 2005.
Net proceeds of $24,875 were used to repay outstanding indebtedness.
On June 16, 2000, the Operating Partnership sold $150,000 aggregate principal
amount of notes under the MTN Program. These notes bear interest at 8.12% and
mature on June 15, 2005. Net proceeds of $148,865 were used to repay outstanding
indebtedness.
As of June 30, 2000, the Operating Partnership had $360,000 aggregate principal
amount of notes outstanding under the MTN Program.
-24-
27
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT APARTMENT UNIT DATA)
Schedule of Indebtedness
The following table reflects the Company's indebtedness at June 30, 2000:
MATURITY PRINCIPAL
DESCRIPTION LOCATION INTEREST RATE DATE (1) BALANCE
----------- -------- ------------- --------- ----------
CONVENTIONAL FIXED RATE (SECURED)
Post Hillsboro Village & The Lee Apartments ... Nashville, TN 9.20% 10/01/01 $ 2,888
Parkwood Townhomes(TM) ........................ Dallas, TX 7.375% 04/01/14 817
Northwestern Mutual Life ...................... Atlanta, GA 6.50% 03/01/09 49,030
----------
52,735
CONVENTIONAL FLOATING RATE (SECURED)
FNMA .......................................... Atlanta, GA LIBOR + .935% 07/23/29 104,000
----------
TAX EXEMPT FLOATING RATE (SECURED)
Post Ashford(R) Series 1995 ................... Atlanta, GA "AAA" NON-AMT + .515%(2)(3) 06/01/25 9,895
Post Valley(R) Series 1995 .................... Atlanta, GA "AAA" NON-AMT + .515%(2)(3) 06/01/25 18,600
Post Brook(R) Series 1995 ..................... Atlanta, GA "AAA" NON-AMT + .515%(2)(3) 06/01/25 4,300
Post Village(R) (Atlanta) Hills Series 1995 ... Atlanta, GA "AAA" NON-AMT + .515%(2)(3) 06/01/25 7,000
Post Mill(R) Series 1995 ...................... Atlanta, GA "AAA" NON-AMT + .515%(2)(3) 06/01/25 12,880
Post Canyon(R) Series 1996 .................... Atlanta, GA "AAA" NON-AMT + .515%(2)(3) 06/01/25 16,845
Post Corners(R) Series 1996 ................... Atlanta, GA "AAA" NON-AMT + .515%(2)(3) 06/01/25 14,760
Post Bridge (R) ............................... Atlanta, GA "AAA" NON-AMT + .515%(2)(3) 06/01/25 12,450
Post Village(R) (Atlanta) Gardens ............. Atlanta, GA "AAA" NON-AMT + .515%(2)(3) 06/01/25 14,500
Post Chase(R) ................................. Atlanta, GA "AAA" NON-AMT + .515%(2)(3) 06/01/25 15,000
Post Walk(R) .................................. Atlanta, GA "AAA" NON-AMT + .515%(2)(3) 06/01/25 15,000
Post Lake(R) .................................. Orlando, FL "AAA" NON-AMT + .515%(2)(3) 06/01/25 28,500
Post Fountains at Lee Vista(R) ................ Orlando, FL "AAA" NON-AMT + .515%(2)(3) 06/01/25 21,500
Post Village(R) (Atlanta) Fountains
and Meadows ................................ Atlanta, GA "AAA" NON-AMT + .515%(2)(3) 06/01/25 26,000
Post Court(R) ................................. Atlanta, GA "AAA" NON-AMT + .515%(2)(3) 06/01/25 18,650
----------
235,880
----------
SENIOR NOTES (UNSECURED)
Northwestern Mutual Life ...................... N/A 8.21% 06/07/01 30,000
Medium Term Notes ............................. N/A 7.02% 04/02/01 37,000
Northwestern Mutual Life ...................... N/A 8.37% 06/07/02 20,000
Senior Notes .................................. N/A 7.25% 10/01/03 100,000
Medium Term Notes ............................. N/A 7.30% 04/01/04 13,000
Medium Term Notes ............................. N/A 6.69% 09/22/04 10,000
Medium Term Notes ............................. N/A 6.78% 09/22/05 25,000
Medium Term Notes ............................. N/A LIBOR + .75% 02/01/05 25,000
Medium Term Notes ............................. N/A 8.12% 06/15/05 150,000
Senior Notes .................................. N/A 7.50% 10/01/06 25,000
Mandatory Par Put Remarketed Securities ....... N/A 6.85%(4) 03/16/15 100,000
----------
535,000
LINES OF CREDIT & OTHER UNSECURED DEBT
City of Phoenix ............................... N/A 5.00%(6) 03/01/21 2,000
Revolver - Syndicated ......................... N/A LIBOR + .825% or prime minus .25%(5) 04/30/03 190,000
Cash Management Line .......................... N/A LIBOR + .675% or prime minus .25% 03/31/01 5,413
----------
197,413
----------
TOTAL ......................................... $1,125,028
==========
(1) All of the mortgages can be prepaid at any time, subject to certain
prepayment penalties.
(2) Bond financed (interest rate on bonds + credit enhancement fees
effective October 1, 1998).
(3) These bonds are cross-collateralized. The Company has purchased an
interest rate cap that limits the Company's exposure to increases in
the base rate to 5%.
(4) The annual interest rate on these securities to March 16, 2005 (the
"Remarketing Date") is 6.85%. On the Remarketing Date, they are subject
to mandatory tender for remarketing.
(5) Represents stated rate. The Company may also make "money market" loans
of up to $155,000 at rates below the stated rate. At June 30, 2000, the
outstanding balance of the Revolver consisted of "money market" loans
with an average interest rate of 7.35%.
(6) This loan is interest-free for the first three years, with interest at
5.00% thereafter. Repayment is to commence on March 1, 2001 subject to
the conditions set forth in the Agreement.
-25-
28
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT APARTMENT UNIT DATA)
Dividend Reinvestment Plan
The Dividend Reinvestment Plan ("DRIP") is available to all shareholders of the
Company. Under the DRIP, shareholders may elect for their dividends to be used
to acquire additional shares of the Company's Common Stock directly from the
Company for 95% of the market price on the date of purchase.
Current Development Activity
The Company's apartment communities under development or in initial lease-up are
summarized in the following table:
QUARTER OF ACTUAL OR ESTIMATED ACTUAL OR ESTIMATED
# OF CONSTRUCTION QUARTER FIRST UNITS QUARTER OF STABILIZED
METROPOLITAN AREA UNITS COMMENCEMENT AVAILABLE OCCUPANCY
----------------- ----- ------------ ------------------- ---------------------
Atlanta, GA
Post Stratford(TM)..................... 250 2Q'99 1Q'00 1Q'01
Post Spring(TM)........................ 452 3Q'99 2Q'00 3Q'01
Post Peachtree(TM)..................... 121 2Q'00 4Q'01 2Q'02
-----
823
Charlotte, NC
Post Uptown Place(TM).................. 227 3Q'98 1Q'00 4Q'00
Post Gateway Place(TM)................. 232 3Q'99 3Q'00 2Q'01
-----
459
Tampa, FL
Post Harbour Place(TM)................. 319 4Q'98 2Q'00 1Q'01
Dallas, TX
Post Legacy 384 3Q'99 3Q'00 4Q'01
Post Addison Circle(TM) III............ 264 3Q'99 3Q'00 2Q'01
Post Uptown Village(TM) II............. 196 3Q'99 2Q'00 4Q'00
-----
844
Houston, TX
Post Midtown Square(TM) (II)........... 193 1Q'00 4Q'00 4Q'01
Denver, CO
Post Uptown Square(TM) I............... 449 1Q'98 3Q'99 1Q'01
Post Uptown Square(TM) (II)............ 247 1Q'00 2Q'01 4Q'01
-----
696
Phoenix, AZ
Post Roosevelt Square(TM).............. 403 4Q'98 1Q'00 1Q'01
Orlando, FL
Post Parkside(TM)...................... 244 1Q'99 2Q'99 3Q'00
Washington, D.C.
Post Pentagon Row...................... 504 2Q'99 4Q'00 1Q'02
Austin, TX
Post West Avenue Lofts(TM)............. 239 3Q'99 3Q'00 2Q'01
Pasadena, CA
Post Paseo........................... 387 2Q'00 2Q'02 2Q'03
-----
5,111
=====
The Company is also currently conducting feasibility and other pre-development
studies for possible new Post(R) communities in its primary market areas.
-26-
29
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT APARTMENT UNIT DATA)
Capitalization of Fixed Assets and Community Improvements
The Company has established a policy of capitalizing those expenditures relating
to acquiring new assets, materially enhancing the value of an existing asset, or
substantially extending the useful life of an existing asset. All expenditures
necessary to maintain a community in ordinary operating condition are expensed
as incurred. During the first five years of a community (which corresponds to
the estimated depreciable life), carpet replacements are expensed as incurred.
Thereafter, carpet replacements are capitalized.
Acquisition of assets and community improvement expenditures for the three and
six months ended June 30, 2000 and 1999 are summarized as follows:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- -------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
New community development and acquisition activity .... $ 99,643 $ 74,939 $ 190,654 $ 154,289
Non-recurring capital expenditures:
Revenue generating additions and improvements ...... 1,457 1,096 2,189 2,114
Other community additions and improvements ......... 764 459 1,438 1,013
Recurring capital expenditures:
Carpet replacements ................................ 619 700 1,410 1,407
Community additions and improvements ............... 1,905 2,106 3,052 3,272
Corporate additions and improvements ............... 413 1,405 1,326 2,360
---------- ---------- ---------- ----------
$ 104,801 $ 80,705 $ 200,069 $ 164,455
========== ========== ========== ==========
INFLATION
Substantially all of the leases at the communities allow, at the time of
renewal, for adjustments in the rent payable thereunder, and thus may enable the
Company to seek increases in rents. The substantial majority of these leases are
for one year or less and the remaining leases are for up to two years. At the
expiration of a lease term, the Company's lease agreements provide that the term
will be extended unless either the Company or the lessee gives at least sixty
(60) days written notice of termination; in addition, the Company's policy
permits the earlier termination of a lease by a lessee upon thirty (30) days
written notice to the Company and the payment of one month's additional rent as
compensation for early termination. The short-term nature of these leases
generally serves to reduce the risk to the Company of the adverse effect of
inflation.
NEW ACCOUNTING PRONOUNCEMENTS
On June 15, 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (FAS 133). FAS 133, as amended FAS 137,
"Deferral of the Effective Date of FAS 133," is effective for all fiscal
quarters of all fiscal years beginning after June 15, 2000 (January 1, 2001 for
the Company). FAS 133 requires that all derivative instruments be recorded on
the balance sheet at their fair value. Changes in the fair value of derivatives
are recorded each period in current earnings or other comprehensive income,
depending on whether a derivative is designated as part of a hedge transaction
and, if it is, the type of hedge transaction. Management of the Company
anticipates that, due to its limited use of derivative instruments, the adoption
of FAS 133 will not have a significant effect on the Company's results of
operations or its financial position.
The Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin
No. 101 (SAB 101), Revenue Recognition, which provides guidance on the
recognition, presentation, and disclosure of revenue in financial statements.
SAB 101 is required to be implemented in the fourth fiscal quarter of 2000.
Management of the Company anticipates that the adoption of SAB 101 will not have
a significant effect on the Company's results of operations or its financial
position.
-27-
30
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT APARTMENT UNIT DATA)
FUNDS FROM OPERATIONS AND CASH AVAILABLE FOR DISTRIBUTION
Historical Funds from Operations
The Company considers funds from operations ("FFO") an appropriate measure of
performance of an equity REIT. Effective January 1, 2000, FFO is defined by the
National Association of Real Estate Trusts as net income available to common
shareholders determined in accordance with generally accepted accounting
principles ("GAAP"), excluding gains (or losses) from debt restructuring and
sales of property, plus depreciation of real estate assets, and after adjustment
for unconsolidated partnerships and joint ventures. FFO should not be considered
as an alternative to net income (determined in accordance with GAAP) as an
indicator of the Company's financial performance or to cash flow from operating
activities (determined in accordance with GAAP) as a measure of the Company's
liquidity, nor is it necessarily indicative of sufficient cash flow to fund all
of the Company's needs. Cash available for distribution ("CAD") is defined as
FFO less capital expenditures funded by operations and loan amortization
payments. The Company believes that in order to facilitate a clear understanding
of the consolidated historical operating results of the Company, FFO and CAD
should be examined in conjunction with net income as presented in the
consolidated financial statements and data included elsewhere in this report.
FFO and CAD for the three and six months ended June 30, 2000 and 1999 presented
on a historical basis are summarized in the following table:
Calculations of Funds from Operations and Cash Available for Distribution
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------ ------------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
Net income available to common shareholders ................ $ 25,924 $ 23,894 $ 50,887 $ 45,313
Extraordinary item, net of minority interest ............ -- -- -- 458
Net (gain) loss on sale of assets ....................... 18 (476) (669) 1,091
Minority interest ....................................... 3,423 3,237 6,743 6,229
------------ ------------ ------------ ------------
Adjusted net income ........................................ 29,365 26,655 56,961 53,091
Depreciation of real estate assets (1) .................. 15,280 13,780 31,174 26,097
------------ ------------ ------------ ------------
Funds from Operations (2) .................................. 44,645 40,435 88,135 79,188
Recurring capital expenditures (3) ...................... (2,524) (2,806) (4,462) (4,679)
Non-recurring capital expenditures (4) .................. (764) (459) (1,438) (1,013)
Loan amortization payments .............................. (289) (20) (599) (40)
------------ ------------ ------------ ------------
Cash Available for Distribution ............................ $ 41,068 $ 37,150 $ 81,636 $ 73,456
============ ============ ============ ============
Revenue generating capital expenditures (5) ................ $ 1,457 $ 1,096 $ 2,189 $ 2,114
============ ============ ============ ============
Cash Flow Provided By (Used In):
Operating activities ....................................... $ 46,664 $ 36,032 $ 89,024 $ 78,714
Investing activities ....................................... $ (103,743) $ (70,196) $ (164,130) $ (144,582)
Financing activities ....................................... $ 52,950 $ 6,114 $ 84,450 $ 47,639
Weighted average common shares outstanding - basic ......... 39,294,234 38,357,308 39,160,002 38,253,833
============ ============ ============ ============
Weighted average common shares and units
outstanding - basic ..................................... 44,480,337 43,559,609 44,349,766 43,462,809
============ ============ ============ ============
Weighted average common shares outstanding - diluted ....... 40,130,580 38,940,186 39,753,796 38,685,353
============ ============ ============ ============
Weighted average common shares and units
outstanding - diluted ................................... 45,316,683 44,142,487 44,943,560 43,894,329
============ ============ ============ ============
(1) Depreciation on real estate assets is net of the minority interest
portion of depreciation in consolidated partnerships and depreciation
on non-real estate assets.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT APARTMENT UNIT DATA)
(2) The Company uses the National Association of Real Estate Investment
Trusts ("NAREIT") definition of FFO. Effective January 1, 2000, NAREIT
amended its definition of FFO to include in FFO all non-recurring
transactions, except those that are defined as extraordinary under
generally accepted accounting principles. The Company adopted this new
definition effective January 1, 2000. FFO for any period means the
Consolidated Net Income of the Company and its subsidiaries for such
period excluding gains or losses from debt restructuring and sales of
property plus depreciation of real estate assets, and after adjustment
for unconsolidated partnerships and joint ventures, all determined on a
consistent basis in accordance with generally accepted accounting
principles. FFO presented herein is not necessarily comparable to FFO
presented by other real estate companies due to the fact that not all
real estate companies use the same definition. However, the Company's
FFO is comparable to the FFO of real estate companies that use the
current NAREIT definition.
(3) Recurring capital expenditures consisted primarily of $619 and $700 of
carpet replacement and $1,905 and $2,106 of other additions and
improvements to existing communities for the three months ended June
30, 2000 and 1999, respectively and $1,410 and $1,407 of carpet
replacement and $3,052 and $3,272 of other additions and improvements
to existing communities for the six months ended June 30, 2000 and
1999, respectively. Since the Company does not add back the
depreciation of non-real estate assets in its calculation of FFO,
capital expenditures of $413 and $1,405 for the three months ended June
30, 2000 and 1999, respectively, and $1,326 and $2,360 for the six
months ended June 30, 2000 and 1999, respectively, are excluded from
the calculation of CAD.
(4) Non-recurring capital expenditures consisted of community additions and
improvements of $764 and $459 for the three months ended June 30, 2000
and 1999, respectively, and $1,438 and $1,013 for the six months ended
June 30, 2000 and 1999, respectively.
(5) Revenue generating capital expenditures are primarily comprised of
major renovations of communities.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes since December 31, 1999.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS
The Company's annual meeting of shareholders was held on May
17, 2000. The matter subject to a vote of shareholders was the
election of two nominees to serve as directors until the 2003
annual shareholders meeting or until their successors are
elected. The voting results were as follows:
For Withheld
---------- --------
Mr. Herschel M. Bloom............... 31,192,371 283,101
Mr. Russell R. French............... 31,187,979 287,493
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Financial Data Schedule for the Company - Second
Quarter 2000 (for SEC filing purposes only)
27.2 Financial Data Schedule for the Operating Partnership
- Second Quarter 2000 (for SEC filing purposes only)
The registrants agree to furnish a copy of all agreements
relating to long-term debt upon request of the Commission.
(b) Reports on Form 8-K
Reports on Form 8-K were filed by each registrant on May 8,
2000 and June 14, 2000.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
POST PROPERTIES, INC.
August 14, 2000 /s/ John T. Glover
----------------- ----------------------------------------------
(Date) John T. Glover, President
(Principal Financial Officer)
August 14, 2000 /s/ R. Gregory Fox
----------------- ----------------------------------------------
(Date) R. Gregory Fox
Executive Vice President, Chief
Accounting Officer
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
POST APARTMENT HOMES, L.P.
By: Post GP Holdings, Inc., as General Partner
August 14, 2000 /s/ John T. Glover
----------------- ----------------------------------------------
(Date) John T. Glover, President
(Principal Financial Officer)
August 14, 2000 /s/ R. Gregory Fox
----------------- ----------------------------------------------
(Date) R. Gregory Fox
Executive Vice President, Chief
Accounting Officer
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